COMBATING TELEMARKETING FRAUD
ONTARIO PROVINCIAL POLICE, ONTARIO, CANADA, 1995
THE PROBLEM: Telemarketing fraud deceives consumers into purchasing goods for a fee
to obtain a so-called valuable prize worth more than the fee.
Additionally, credit card numbers can also become the primary target of
the fraudulent scheme through additional unauthorized charges to the
ANALYSIS: An investigation revealed that 99% of the suspect telemarketing
companies were operating out of Montreal. Organized criminal elements
were controlling the multimillion-dollar fraud. The lack of a central
location for complaints prohibited an accurate assessment of the problem
and prevented effective responses by police and government. As a result,
suspect telemarketers operated with little risk of being detected or
RESPONSE: “Project Phonebusters” was established to combat telemarketing fraud in
Canada. The Ontario Provincial police formed partnerships with other
government agencies and established a centralized database in order to
facilitate the detection and prosecution of telemarketing fraud.
ASSESSMENT: As a result of “Phonebusters” and its partners proactively and tactical
approach, the losses due to telemarketing fraud were reduced to fifty
million dollars in 1994 and thirty million dollars in 1995, compared to
one hundred million dollars in 1991 and 1992.
SCANNING usually would not otherwise have purchased. As
one fraudulent telemarketer testified in the
Telemarketing fraud, defined broadly includes Congressional Hearings in the U.S. on the “The
all schemes where a telephone communication is Scourge of Telemarketing Fraud: What Can be
the principal component used to defraud the Done Against It,” the telephone allows one “to
public. The unscrupulous telemarketers’ pitch, paint a picture or an illusion in the mind of a
the most common of which—the “Car Pitch,” client that is not factual,” something hard to do
the “Cash Pitch,” and the “Cheap Gift Pitch”— in a face-to-face meeting, and to reach many
are all attempts to deceive or dupe the consumer more people than can be done in person.
into purchasing goods for a fee, to obtain a so
called valuable prize worth much more than the The promised prize or item is never delivered or
fee. is substantially inferior to that which has been
promised. Most of the fraudulent schemes are
The telephone is used by the unseen salesperson designed to closely resemble legitimate business
who may be using many different aliases to transactions, thereby making successful
develop the victim’s confidence, by using detection and prosecution more difficult.
various techniques to purchase a product he
In addition, credit card numbers can also the problem and prevented a cohesive approach
become the primary target of the fraudulent by police and government. These factors
scheme through additional unauthorized charges allowed the suspect telemarketers to operate
to the cardholder’s account (for no items or with little risk of being detected or prosecuted.
services purchased). The merchant bank, not the Because of “Phonebusters,” the Police now have
consumer, is held responsible for these a proven coordinated approach both tactically
unauthorized charges. As a result of these losses, and proactively to deal with this complex crime.
the banks have become more careful in
accepting merchant accounts from The question arose as to the possibility of
telemarketers.. investigating these complaints as a fraud
contrary to the Criminal Code of Canada and
The Anti-Rackets Branch of the Ontario convicting the owners, not the companies, of the
Provincial Police in North Bay began an crime. It is believed that this type of
investigation into telemarketing fraud in early enforcement would be an effective deterrent for
1991. Detective Staff Sergeant Barry Elliott these individuals and also deter others from
became interested in a few complaints and operating these boiler rooms in the future.
attempted to do some investigative follow-up. It
became apparent that little work was being done It was Elliott’s opinion that a successful
and the little that was being attempted was prosecution could be obtained but it was first
simplistic and ineffective. necessary to gather as many complaints as
possible into one central location where they
Prior to “Phonebusters, Phase I,”, complaints could then be analyzed to determine the
received by police were given low priority or complexity of the problem.
treated as civil, because the perpetrators operate
from another province, which tends to RESPONSE
discourage any in-depth investigations. The
police work involved usually consisted of a long Project “Phonebusters” was established in
distance call to the company where someone January 1993, to combat telemarketing fraud in
would pass himself off as the manager or owner Canada. The Project is a joint effort, combining
and would generally satisfy the police by the financial and human resources of the Ontario
explaining that the telemarketer in question Provincial Police, which co-ordinates the
would be fired or he was no longer with the project, the Royal Canadian Mounted Police, the
company because he was not sticking to the Federal Department of Industry Canada, the
sales pitch supplied by the company and that this Ontario Ministry of Consumer and Commercial
company was indeed legitimate. The officer Relations, the Alberta Ministry of Housing and
would generally not go any further with the Municipal Affairs, the Canadian Bankers
investigation.. Association, the Canadian Courier Association
and the Canadian Better Business Bureaus. The
ANALYSIS goal of this investigation is to centralize all
complaints and prosecute key individuals and
In 1991 Elliott decided to conduct a six-month companies involved in telemarketing fraud
country wide investigation by central sourcing under the Criminal Code.
all telemarketing complaints across Canada to
one location in North Bay. This analysis The information that “Project Phonebusters”
revealed that 99% of the suspect telemarketing collects is based on a system called central
companies were operating out of Montreal, sourcing. The telemarketing complaints are all
Quebec and what appeared to be forwarded by federal, provincial, police and
isolated fraud, was in fact a multi-million dollar private agencies, either directly or indirectly to
fraud controlled by an organized criminal North Bay. These complaints are analyzed and
element. the information entered into a computer Q & A
The previous lack of a central location for
complaints prohibited an accurate assessment of The up-to-date information on new frauds or
company activity, along with complaint of being used to launder cheques or money
information, is quickly disseminated to the orders which have been obtained by fraud and
appropriate agencies and the necessary action is converted into cash.
usually taken to block the companies ability to
operate. Thus “Project Phonebusters” can The CBA gather statistics on all types of credit
continue to complete prosecution and arrest card fraud. Their statistics indicate losses of
packages and also continue to reduce the amount approximately three to five million dollars in
of victims who are contacted by fraudulent 1992, five hundred thousand in 1993 and less
telemarketers and continue to drive the than two hundred and fifty thousand in 1994.
telemarketing companies income downward. This reflects a direct result of “Phonebusters”
liaison with corporate and credit card security
ASSESSMENT members of the Canadian Bankers Association.
“Phonebusters” and the CBA has removed credit
It is estimated that less than 5% of the victims in card as the primary method of payment and
1994 and 10% in 1995 actually complain mainly nearly eliminated merchant credit card fraud in
because of embarrassment. The investigation this area.
revealed that the fraud peaked in 1991and 1992
at one hundred (100) million per annum. As a Complaints are now forwarded to Canadian
result of “Phonebusters” and its partners Bankers Members Corporate Security Sections
proactively and tactical approach, the fraud was who complete a third party investigation and if
reduced to fifty (50) million in 1994 and deemed necessary, the closure of those
approximately thirty (30) million dollar loss in suspected accounts. This joint action and
1995. cooperation further hinders suspected
telemarketing companies from being able to
The main reason for the increase in complaints operate which in turn reduces gross sales and the
in 1995 is partly due to the new addition of number of .victims per annum.
Better Business Bureaus (BBBs) across Canada,
as a new partner. The BBBs forward all Due to the large amount of fraudulent sales that
telemarketing complaints directly to these telemarketing companies gross, the banks
“Phonebusters.” Other reasons for the increase is are further put at risk in evidence involving
due to the heightened awareness of business chequing accounts that are suspected
"Phonebusters" to Police Agencies across the that loans are issued based on this fraudulently
country, and increased public awareness of obtained collateral. As a result when the activity
telemarketing fraud through community policing is discovered to be fraudulent, the bank may be
and other programs some of which were initiated caught with unpaid loans with limited financial
by some of the partners within “Project recourse and suffer losses.
Phonebusters.” "Phonebusters" has continued to align itself with
strategic partners across the country including
As well, articles on telemarketing fraud which the addition of the BBBs and the Canadian
have been published in almost every newspaper Courier Association in 1994.
across the country, including radio talk shows,
television news stories and consumer protection In 1995 Phonebusters has already taken steps to
programs such as Fifth Estate and Market Place align itself with Canada Post, Canadian
in Canada and 48 Hours, Dateline and Eye-To- Telephone Association (STENTOR) and the
Eye in the United States. Federal Trade Commission and the Better
Business Bureau in the United States.
“Phonebusters’” liaison with the Canadian
Bankers Association and the corporate and INVESTIGATION UPDATE
credit card security members, and their constant
monitoring of telemarketers merchant accounts Phase I
has nearly eliminated credit card as the primary
method of payment. This liaison has also led Phase I of “Project Phonebusters” targeted:
to “Phonebusters” being able to provide suspected telemarketing group who was
operating out of the City of Montreal. and companies. The two owner/operators of the
surrounding area as of January 1993. group were arrested February 24, 1995 and
released on $20,000 cash bail. A pre-trial
'This group was named by the investigators as meeting was held on May 24, 1995. A. trial date
Dorsey Group. Between November 1993 and is expected to be set in March 1996 upon
January 1995, seven arrest warrants were issued completion of the investigation:
based on charges to defraud the public against
seven members of the above mentioned group. Across Canada approximately five to seven
These charges were based on approximate two thousand victims have been defrauded of
thousand victims across Canada who approximately to five to seven million dollars
collectively lost approximately two million since January 1993.
dollars. This group mainly used the car pitch.
The victims all have the same common
To date, results of the seven warrants stand as complaint, they were promised over the phone
follows: that they had won a major prize and had to send
money to purchase a product in order to qualify
One sentenced to probation for 24 for the prize.
months upon agreeing to testify against
others. Group II of Phase II, Mcmahon is associated to
6 telemarketing companies. The leader of the
Two are set for pre-trial meeting on group was arrested and released on April 26,
August 22, 1995. Three are to set a date 1995. A trial date is expected to be set in March
in June 1995. 1995. Victims have been defrauded for
approximately one million dollars.
One outstanding Arrest Warrant as of
March 31, 1995. Group III of Phase II, Langman is known to
own/operate approximately 19 telemarketing
As a result of the arrest of one of the members, companies across Canada and the U.S., five
an agreement was made for his release in thousand victims have been defrauded of
exchange for information he provided to approximately five million dollars.
Montreal Urban Police. This information has
resulted in the arrest and charges of three male Phase III
parties in Montreal for the first degree murder of
a male victim which occurred in the summer of Phase III which commenced in April 1995
1994. anticipated in April 1996 involves two major
groups for arrests
Rost Group I and Artzy Group II are associated
Phase II of “Project Phonebusters,” which to approximately 20 telemarketing companies in
commenced in April 1994, targeted three the Montreal area each. These groups are
groups. Between February 1995 and June 1995, suspected of defrauding approximately ten
8 persons were charged with 16 criminal thousand Canadian victims of an approximate
offences. “Phonebusters’” tactical approach has ten million dollars between 1993 and 1995.
changed, we will be arresting all persons
involved, from the receptionist to the owners, to CONCLUSION AND SUMMARY OF
create further paranoia and concern within INVESTIGATIONAL OBJECTIVES
The objectives of “Phonebusters” was to reduce
As a result approximately another 20 persons the annual dollar loss both tactically and
associated to these companies will be charged proactively throughout Canada.
this summer of 1995.
Group I of Phase II, Pinsky/Staszower is “Phonebusters” has been able to solve the
associated to approximately 30 telemarketing jurisdiction issues regarding the prosecution.
“Phonebusters” has established an information
network in which it can access and send
information to strategically aligned partners
which further disrupts the suspect(s)
company(ies) ability to operate.
“Phonebusters” provides effective and cost
efficient services to the Canadian public by
avoiding duplication and providing one stop
service for complaints.
In June 1995 the National Fraud Information
Centre and "Phonebusters" agreed to cooperate
and all U.S. complaints regarding Canadian
based telemarketing companies will be
forwarded to North Bay from Washington D.C.
daily. As well, "Phonebusters" expects to align
itself with all members of the Better Business
Bureau across the United States for the for the
In conclusion, the central sourcing and
immediate analysis of complaint data combined
with proactive and tactical approach has proven
to be the answer in solving the telemarketing
problem on a national and international level.